Volkswagen burned through more of its brand equity, with a new Notice of Violation issued by the U.S. Environmental Protection Agency on November 2nd. The Notice states that software controlling 3L V6 diesel engines in the 2014-2016 Volkswagen Touareg, Porsche Cayenne, and several large Audis was designed to dumb down the emissions control system literally one second after the U.S. federal government lab test is over! The EPA also alleges the V6 diesel is designed to behave differently when it`s in the lab than when it`s on the road. Government testing revealed that on-road emissions of nitrogen oxides, or NOx, were up to nine times the permitted standard; that’s high, but less than the four-cylinder diesel which pollutes up to 35 times more than the U.S. standard, according to published reports. In a nod to Canada, the EPA Notice says it received assistance from Canadian government labs – they must have cleaned the cobwebs out – and the California Air Resources Board.

Volkswagen’s senior executives have not conceded that the V6 diesel violates emissions standards. A senior VW executive in Britain has stated that the use of this technology is "in line with current legislation" in Europe. However, the company stated that it will cooperate fully with the EPA, and has directed its dealers to stop selling the concerned models.

The 3L V6 diesel is featured in expensive premium models, and its overall sales in North America are small compared to the mainstream 2L TDI Clean Diesel -- about 10,000 vehicles in the U.S. have the V6 diesel according to published reports. Unlike the four cylinder TDI, all 3L V6 diesels are equipped with the AdBlue exhaust treatment system, so bringing them into compliance will be less of a challenge, because the necessary equipment is likely already in place, and revised computer programming may be sufficient.

In Canada, VW just sent a letter informing owners of affected TDI vehicles that they will be receiving an "Owner Credit Package as a gesture of goodwill for (their) continued patience." You can read the full VW Canada newsletter by clicking the link in the column to the right.

More ominous this week is that VW has admitted to “irregularities” with European fuel economy ratings (in Europe this is measured as carbon dioxide or CO2 emissions in grams per kilometer) it provided for 800,000 vehicles starting with the 2012 model year. Engines affected include a gasoline 1.4L used here in the Jetta Hybrid, and diesel engines displacing 2L and less. Engineers reportedly ran fuel consumption lab tests with tires inflated to over 50 pounds per square inch, and tampered with the engine oil or diesel fuel to generate better numbers.The implications for Europeans are significant, as some jurisdictions rely on the C02 number to calculate vehicle taxes and annual registration fees.

“Tweaking” lab tests to understate CO2 emissions in Europe is reported to be at least as widespread as boosting fuel economy ratings is in North America, but VW’s admission appears to have opened a Pandora ’s Box. Volkswagen A.G. has estimated it will cost 2.2 billion dollars to handle “the legal and economic consequences” arising from fuel consumption “irregularities.” That works out to roughly $2,200 U.S. per vehicle in owner compensation and other costs related to the irregularities. To date, VW’s North American fuel economy numbers have not been implicated. (In APA’s comparison testing, the VW TDI diesel correlated more closely with its published fuel consumption figures for Canada, than the Toyota and Honda hybrids included in the same tests.)

Like the situation with General Motors, where an unsafe ignition switch, was followed by a cover-up and then an eventual river of mea culpas, we can expect Volkswagen to be in the news repeatedly over the next few months, as many corporate skeletons come rattling out of the closets. Here is what retired auto executive Bob Lutz had to say about the leadership at Volkwagen and the corporate misbehaviour it can lead to:

It`s what I call a reign of terror and a culture where performance was driven by fear and intimidation. He just says, "You will sell diesels in the U.S., and you will not fail. Do it, or I`ll find somebody who will." The guy was absolutely brutal…

In these situations, your choice was immediate dismissal, or find a way to pass the test and pay the consequences later. Human nature being what it is—if it`s lose your job today for sure or lose your job maybe a year from now, we always pick maybe a year from now.